Thursday, August 16, 2018

Socialism in the Democratic Party

Socialists in the Democratic party fall into two categories. Some, like Bernie Sanders, are old enough that socialism still seemed to be viable economically when they came of age and are too stubborn to learn from history. Others, like Alexandria Ocasio-Cortez, are too young to remember the collapse of socialism and apparently don't know the history. 
In the 1960s, when Sanders came of age, about one-third of the world's population lived in communist nations with economies that were totally socialist, owned and managed by the state. Many other nations, such as India, had economies that were partly socialist, with government owning and managing some industries.  Socialism claimed it was more efficient than capitalism: in 1956, Khrushchev told western ambassadors "We will bury you," meaning that Russia was growing more rapidly than the West, and the entire world would ultimately become socialist because of its economic success. 
It didn't work out that way. In the late 1980s, communism collapsed in eastern Europe because it was inefficient and the economies were stagnant. In 1991, the Soviet Union collapsed for the same reason; economists agree now that it had rapid growth in the 1950s only because population was moving from the countryside, where productivity was very low, to cities where it was somewhat more productive, and after this movement ended, its economy stagnated.  India socialized parts of its economy after independence, but a stagnant economy led it to privatize in the late 1980s and early 1990s. China still calls its economy "Socialism with Chinese characteristics," but the main Chinese characteristic is a large market sector, introduced in the 1980s, which accounts for most of China's economic dynamism. 
In the late 1980s and early 1990s, virtually every nation realized that the market was more efficient than socialism. The few nations that remained genuinely socialist, such as Cuba and North Korea, became economic basket cases. 
A market economy is more efficient for an obvious reason. As a result of competition, more efficient businesses thrive and less efficient businesses fold, so the economy as a whole become more efficient. By contrast, when industries are state-run monopolies, they keep plodding along no matter how inefficient they become. 
It is easy to understand why some young Democrats like Alexandria Ocasio-Cortez are socialists. Since the 1970s, most of the benefits of America's economic growth have gone to the wealthiest 10%. The average person's earnings grew slowly for decades, and median income has not grown at all since since the year 2000. In 1970, inequality in the United States was similar to other advanced economies, but now the United States is the most unequal of all the advanced economies.
But history should teach us that the solution is not to kill the goose that lays the golden eggs. Rather than replacing the market economy with a socialist economy that will lead to stagnation, we should distribute the wealth that the market economy creates more fairly. 
One key is overhauling the tax system. Raise taxes on the very rich. Lower taxes on the middle class. Increase the Earned Income Tax Credit for those with moderate or low incomes. Other things are needed, but using the tax system to reduce inequality is one key action that would let us bring back the widespread prosperity of the 1950s and 1960s, when the benefits of economic growth were distributed fairly and incomes went up for all Americans, not just for the obscenely rich.

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